A long-term approach to investment decision-making delivers superior value over time. FCLT Compass measures the investment horizons of the global investment value chain, how households are saving and allocating their money, and how long they can live off those savings. Calculating these metrics provides a holistic understanding of the long- or short-term orientation of global capital markets and how that orientation impacts the financial futures of millions of people worldwide.
FCLT Compass now reflects 15 years of data, examining global wealth and investment horizon shifts since 2009. In addition to answering the question, “Are capital markets becoming more long-term or short-term?” this project draws the connection between investment horizons, global participation in capital markets, and the health of household savings, demonstrating the power of long-term investing.
In 2023:
The disconnect between global wealth accumulation and time horizons in this period highlights an underlying tension: while resources have grown, the patience to invest for the long term has diminished.
2023 saw macroeconomic conditions that shortened investment horizons for savers and asset classes and slightly lengthened for companies; however, the gaps between asset classes, companies, and savers’ horizons persist.
Over the past decade, the emergence of index funds has driven a 7% increase in average asset class horizons. However, 2023 marked a notable reversal, as horizons decreased by 8%. Rising interest rates, which reduced fixed-income durations and increased turnover in the active equities market, contributed to this decline.
In that same timeframe, corporate investment horizons shortened by 9%, largely due to lower CapEx and increased allocation to dividends and buybacks. In 2023, there was a slight reversal in these trends: Buybacks became a less attractive use of capital, coinciding with more spending on R&D, resulting in a 5% increase in corporate horizons year-over-year.
Since 2009, household investment horizons have decreased by 35%, with savers shifting more towards cash and short-term equity. Meanwhile, institutional investors have extended their horizons by 9%, shifting towards private equity, real estate, and infrastructure, reflecting a strategy focused on growth and resilience.
Regions with lower levels of market participation see fewer individuals benefiting from the growth opportunities that capital markets can provide. When only a small segment of households invests in financial markets, the advantages of compounding returns and wealth accumulation remain out of reach for most.
Household investment horizons are shorter in the Middle East, Africa, and East Asia due to lower overall market participation, especially compared to the Americas and Europe. Even though wealth has increased significantly in these markets (household wealth has more than doubled over the past decade globally), investment horizons are not getting longer.
Examining the countries with the highest and lowest levels of capital market participation reveals the relationship between capital market participation and economic development.
This disparity underscores the importance of financial resources as a pathway to accessing the benefits of capital markets.
Broader capital market participation is critical to unlocking economic mobility, securing retirement, and extending investment horizons, but it remains a luxury that primarily benefits those who can afford it.
Even in the wealthiest countries, significant portions of the population have insufficient savings. The average household in our study can only live off its current savings for less than five years.
To learn more, explore the FCLT Compass dashboard and read the 2024 report:
Report
5 December 2023 - FCLTCompass is an annual benchmarking tool that tracks long-term investment behavior on a global scale. Our latest analysis, covering calendar year 2022, highlights short-term decision-making at both ends of the investment-value chain.
Article
29 August 2023 - While the past year reflects a continued upward trend in investor horizons, it also revealed a material decline in investment horizons for corporates to their lowest since the project began.
Report
6 December 2021 - FCLTCompass tracks long-term investments on a global scale. The project anchors long-term investing to quantitative data reported in years and dollars, framing the conversation around sustainable finance in a more actionable light.
Report
7 December 2020 - FCLTCompass is an annual reporting of money as it flows through the global investment value chain. Taking 10+ years of financial data, it traces investors’ savings through various asset vehicles, finally arriving at the companies that deploy it in support of economic growth.